Special Needs Trust: When is a Special Needs Trust Needed?

When a person creates a trust, the most important goal is to ensure that the trust provides the greatest benefit to the people for the assets that are left behind. What some may not realize is that when there is a disabled beneficiary involved, simply giving a gift directly to them can actually be more harmful than helpful to them.

The reason this is the case is that disabled individuals are often enrolled in government benefit programs which can include Medicaid and other supplemental financial assistance. Receiving too much money at once or holding too much money in a trust that isn’t considered a special needs trust can unfortunately disqualify individuals from meeting the requirements to qualify for these programs.

Special needs trusts allow for the money and assets held within them to be put towards the care and maintenance of a disabled person without them being considered the property of the disabled person and thus replacing the benefits they would otherwise receive from Medicaid and other government benefits.

There are two major types of special needs trusts; a self-funded special needs trust and a third-party special needs trust. A self-funded special needs trust is funded using the assets and income of the disabled person.  A third-party special needs trust, also known as a supplemental need trust, takes the assets and income of another person and funds the trust with that.

A self-funded trust would often be for a person who becomes disabled later in life after having obtained personal wealth and after a medical event, needing to now qualify for benefits to ensure that the person can continue to afford their care. A supplemental needs trust is often put together by parents of disabled children so that they can best care for their kids and ensure their kids receive all available benefits to them especially when many of these children may be reliant upon those benefits for their entire lives.

The money contained in a special needs trust of any kind must be used for the sole benefit of the disabled beneficiary. When there is suspicion of ineligible transfers and distributions being done in a special/supplemental needs trust, it can create a risk that the trust will not be considered a special/supplemental needs trust. If that were to occur all assets contained within the trust could be counted against the disabled individual as personal income and assets. If a disabled person were to receive a large influx of money at once, it could result in them being disqualified from a benefit. The worst situation would be for the government benefits to be received and the government later determine that the person receiving the benefits didn’t qualify. Not only would the disabled person then be thrown into a situation where they have to figure out how to re-qualify for benefits, they may find that they are forced to pay back money already received and possible spent.

A special/supplemental needs trust is a vital tool for ensuring that you are able to give support and a gift after your passing to your disabled heir, letting them know how much you care for them, while also not risking becoming a hindrance to them as they attempt to secure necessary government aid.

 

If you have any family members that receive government aid and you wish to provide for in a trust, consider calling the Law Offices of Andrew Szocka P.C. at 815-455-8430 or by emailing us at info@szocka.com. We are a well-established Crystal Lake firm with extensive experience in wills, trusts, and all aspects of estate planning. We would love to meet with you and discuss your long-term goals for everyone in your family!